The Death of New York

Here's the picture of the new New York: the new immigrants to New York are the American wealthy and their adult-age children. The new New York has not prepared for the new with large-scale construction, so these new migrants-of-means will gentrify this city unrecognizably throughout all five boroughs.

One of the few incentives to construct remains rent regulation. New construction is not regulated (unless the developer voluntarily accepts a cross-subsidy). When you read the nearly all economists, left, right or upside down and even the redoubtable Krugman, agree that rent regulations are bad for the housing market, what they mean is regulations across the board, including new construction. None of that holds in NYC. It's just the opposite. Rent regulations actually serve new construction. And deregulation wouldn't increase the market pool either. Regulated renters evicted by deregulation don't generally leave the pool -- they work in the city or have family here. They remain in the metro area, and wherever they go they create a tighter market there, displacing renters and upscaling neighborhoods, creating pressure both upwards and downwards. The result of deregulation is a disruptive game of musical chairs in which at best landlords at the top renovate to update deregulated spaces. (This was studied by, of all groups, Giuliani's arch-conservative Manhattan Institute, concluding that deregulation in Boston didn't lower market rate rents but actually increased market rate rents across the board.) The sum effect is a increase in the aggregate funds available for rent, and all of that goes to the landowner -- little more that a shift from the local economy where the regulated renters were spending, to the landlords. 

The moral is: keep rent regulations and construct luxury housing in upscale neighborhoods to keep the upscale out of ethnic neighborhoods, and hope that other American cites can draw the wealthy away from us.